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How “Build Back Better” makes workers’ lives worse.

Jsouls To throw, an adviser to John F. Kennedy, Nobel laureate and prominent Keynesian economist of his time, concluded in 1965:

Public assistance encourages the disintegration of the family. . . it is bad enough to encourage idleness but even worse to legislate on the incitement to desertion. . . . Too often it is necessary for the father to leave his children so that they can eat.

Public aid is much more generous today than it was in Tobin’s day, which has led elected officials from Bill Clinton to Barack Obama to recognize that, in the latter’s words, “we have to have the job at hand. heart of all social policy ”, and that“ children benefit not only from loving mothers and loving fathers, but also from strong and loving marriages. Nonetheless, 48 ​​U.S. senators are now striving to transform families with ambitious new legislation that contains a host of hidden but heavy disincentives to work and marriage.

Take section 23001 of the Build Back Better (BBB) ​​bill, which would create a new federal child care program. For every year a couple have children under 5, being single could easily save them over $ 10,000 per year in child care costs compared to marriage, as the new program would base the grant on the child. household income, without combining the income of unmarried parents. If, say, a mother earned 75 percent of the median household income in her state, her young children would receive fully federally paid care – if, that is, she was not married to anyone earning. income. The same mother, if she was married to an employee, would have to pay the childcare costs herself. In 2022-2024, the family would pay the full price, which would likely exceed $ 15,000 per child per year (eg $ 30,000 for two children under 5). Later, marrying a working father would cost them 7% of their household income, which in itself would be a five-figure expense if the father earned a little more than the median.

For most families, the cost of additional child care (beyond one) aged 0 to 4 would be zero. The different incentive for a second, third, etc., young child would affect the number and spacing of births, causing some demographic groups to specialize in large families and others to have fewer children. Some parents would be encouraged to keep their children in the care of parents. Israel has seen such distortions result from its generous welfare programs.

Child care is just one of many programs that would strongly encourage even middle-income people to seriously consider single parenthood. Several Republican senators have written to Majority Leader Chuck Schumer to oppose the new marriage sanctions included in Democrats’ proposed reforms to the earned income tax credit. They cited a new marriage penalty of $ 2,713 in additional taxes, which appears to be pennies compared to the pending additional child care expenses for married couples in section 23001. This does not include the penalties. wedding costs inherent in the $ 220 billion BBB would spend on “affordable housing,” details of which have yet to be determined.

Child care costs are already high enough, but the new child care program would increase them further. Under the title of “quality regulation”, BBB demands that female educators be paid as much as elementary school teachers. According to the Bureau of Labor Statistics (2020), elementary teachers earned an average of $ 63,930 per year in 2019, compared to an average of $ 25,510 for educators. That is, under the BBB, child care facilities should pay child care workers 151 percent more. Because $ 63,930 is nowhere near what equates to supply and demand in the child care market, its operation would have to change drastically in order to comply with the law. Perhaps daycare workers would be required to hold a master’s degree or be represented by unions that might otherwise limit supply like they do for kindergarten teachers.

Over the past year, we have all witnessed the willingness of public sector teachers’ unions to dramatically undermine children’s learning in order to obtain tiny health benefits for teachers, while neighboring private schools kept their open schools. Perhaps the outcomes for children would also be worse in a public child care system. In fact, Quebec has imposed “quality” regulations on its childcare services market, which, according to studies, “is increasing.[e] early childhood anxiety and aggression “with” a significant and significant negative impact on the preschool, non-cognitive development and health of children exposed to the new program, with little measured impact on cognitive skills “and” poorer health, lower life satisfaction and higher crime rates later in life. Regulated public facilities end up being toddler farms with few opportunities for cognitive and social development, which many ordinary families tolerate because they are “free”.

BBB includes several programs that distribute benefits in a way that discourages labor through two fundamental economic mechanisms. First and foremost is the creation and expansion of employment benefits. Full-time employment is a major barrier to participation in programs, even if this job does not generate much income. Specifically, BBB allows even the highest income US households to participate in subsidized “Obamacare” insurance plans as long as they are not in a job offering health insurance. For most full-time workers, their employment status itself excludes them and their families from additional Obamacare grants provided through the BBB, specifically its sections 137501 and 137502.

The second mechanism is that of income-tested benefits, which discourage income generation by withholding benefits as a household’s income increases. The federal child care program proposed above is one example. Another is in section 136407, which creates a tax credit of 15% of the purchase price of an electric bike, but the credit is reduced by $ 0.20 for every additional dollar earned by the household. More important, from a global perspective, are the new federal child care program and various additions to major income-based programs such as Medicaid, “affordable housing” and the child tax credit. All of this means that as labor income increases, the amount offered by these benefit programs decreases. The means test creates high marginal tax rates for workers who work an extra hour, day or week, or to undertake the kind of skills upgrade that would allow them to get promoted.

The bill would also reduce work by limiting competition in the labor market, imposing mandates on employers and increasing consumer prices for telecommunications, energy and other products. All of these disincentives are in addition to those already present in the Reference Case due to an ongoing portfolio of federal, state and local tax, spending and regulatory policies.

I estimate that BBB’s many implicit employment and income taxes would increase marginal labor tax rates by about 8 percentage points. I expect such a shift in the disincentive to reduce full-time equivalent employment by about 6 percent, or nearly 9 million jobs over 10 years. Any economic effect of funding BBB – with current or future personal or business income taxes – would add to this estimate.

Hopefully the potential negative effects on families have been carefully considered before rushing to pass this bill. As European countries have learned the hard way, job losses and ‘lone parenthood’ tend to accumulate over time as businesses and households adjust more to the fact that work and marriage are no longer customary behaviors among large segments of the population.

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Casey B. Mulligan is Professor of Economics in the Kenneth C. Griffin Department of Economics at the University of Chicago and was Chief Economist of the White House Council of Economic Advisers in 2018-19. He is also the author of You are engaged! Untold successes and failures of a populist president, which details the conflicts between President Trump and special interests.

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